NEW DELHI — SpiceJet Ltd., the budget airline controlled by Indian billionaire Kalanithi Maran, teetered on the brink of collapse Wednesday after a government flip-flop over a promised state-backed rescue package.
Within hours of Tuesday night’s press statement from the government asking state-controlled refiners to offer fuel on credit, oil companies rebuffed the request, forcing the distressed carrier to ground its fleet for part of Wednesday. A token payment by SpiceJet toward past fuel dues helped buy time and resume some flights even as oil companies demanded more.
SpiceJet is the second-biggest budget carrier in India after IndiGo and has reported five straight quarterly losses. It has tried for more than two years to woo an external investor and has cut its fleet of Boeing Co. planes as part of a survival strategy.
“The press release was not final,” Mahesh Sharma, junior aviation minister said Wednesday in New Delhi, referring to the statement distributed by his ministry Tuesday. “If they come up with a concrete proposal to the government or to the ministry or to the concerned oil company, we’ll react in a positive manner.”
The government’s reversal comes as the airline delayed salary payment to staff, canceled flights and had to give back planes in the past month as it struggles to remain operational. Sharma said today the airline hasn’t come up with a concrete plan and the government can’t help an individual company.
Ajay Singh, a former majority shareholder of SpiceJet, is examining the possibility of buying a stake in the company, two people familiar with the matter said. Singh met Indian aviation ministry officials late Wednesday, the people said, asking not to be identified because talks are private. Singh didn’t respond to a call and a text message to his mobile phone.
SpiceJet based in Gurgaon, near New Delhi, Wednesday paid 30 million rupees ($471,205) toward some fuel dues, another civil aviation ministry official told reporters, asking not to identified citing rules.
The payment helped resume 75 flights starting 4 p.m., according to a separate statement from SpiceJet.
Sanjiv Kapoor, SpiceJet’s chief operating officer, said in a text message that oil companies had yet to agree to supply fuel on credit.
Shares of the airline fell 5.4 percent Wednesday to 13.15 rupees, the lowest level since Oct. 7. They had gained as much as 7.6 percent in intraday trading.
The stock rose Dec. 16 after the government said the carrier could take bookings up to March 31. The Directorate General of Civil Aviation earlier had barred SpiceJet from accepting bookings for travel more than a month ahead.
SpiceJet owes 140 million rupees to oil companies, less than 0.5 percent of its annual fuel bill, Kapoor said Wednesday.
India’s state-run oil companies are free to take their own decision on supplying fuel to SpiceJet, Oil Minister Dharmendra Pradhan told reporters in New Delhi Wednesday.
India’s government said Tuesday that banks may be asked to lend as much as $94 million to SpiceJet, as the indebted carrier seeks investment over the next two months to keep flying. State oil companies will be asked to provide SpiceJet with as much as 15 days worth of credit and airport operators will offer a 15-day payment window, the Civil Aviation Ministry said Tuesday.
Maran will guarantee the loans and repay as soon as an investment is secured, part of a package of steps to prevent a shutdown that would damage India’s airline industry, the government said yesterday. It arranged a credit line for fuel for SpiceJet and eased booking curbs imposed after the carrier canceled flights and missed salary payments.
S.L. Narayanan, group chief executive officer of Sun Group controlled by Maran, couldn’t be immediately reached on his mobile phone.
Base fares as low as 2 U.S. cents and jet fuel costs inflated by taxes have stoked more than $10 billion in aviation losses in the last seven years in India. Liquor baron Vijay Mallya’s Kingfisher Airlines Ltd. got grounded in 2012 amid mounting debt and billions of dollars in orders with Airbus Group NV.
“SpiceJet, and Kingfisher before that, illustrate the seemingly perennial problems in Indian aviation,” said Robert Mann, president of aviation consultant R.W. Mann &Co. in New York. He cited “fragmentation, excess capacity, irrational pricing, and unrealistic expectations for economic growth associated with unaffordable aggressive fleet plans.”
Access to overseas borrowing for working capital will be eased, the government had said yesterday, adding SpiceJet needs about eight weeks to “consummate” long-term investment.
A financial proposal the carrier submitted to the government in a meeting two days ago didn’t provide new information regarding new investors or funds, an official at the DGCA told reporters in New Delhi, asking not to be identified citing departmental rules.
Media billionaire Maran and his company KAL Airways Pvt. together own more than 58 percent of SpiceJet, according to data compiled by Bloomberg. He spent 7.4 billion rupees buying a stake from Wilbur Ross in 2010 at 47.25 rupees per share and has invested a further 5.6 billion rupees, SpiceJet has said.
Despite airlines’ struggles to make money in India, the growth potential has convinced Singapore Airlines Ltd. and AirAsia Bhd. to start operations in India. Domestic travelers are projected to triple to 159 million by 2021.
The government is under pressure to keep SpiceJet flying as another grounding after Kingfisher would cause lessors and other suppliers to India’s aviation industry to demand tougher contract terms for higher risk, said Mark D. Martin, chief executive officer of Dubai-based Martin Consulting.
“SpiceJet clearly has run out of time,” he said.
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